Polaris Reports 2017 Fourth Quarter and Full Year Results

Reported sales for the fourth quarter of 2017 increased 18% to a
record $1,431 million; adjusted sales were $1,430 million, up 17%, a
majority from organic growth

Fourth quarter2017 reported net income was $0.49 per
diluted share; adjusted net income for the same period was $1.47 per
diluted share, in-line with expectations and up 25% over the prior year

Full year 2017 reported net income was $2.69 per diluted share;
adjusted net income for the same period was $4.85 per diluted share,
in-line with previously issued guidance. Reported and adjusted sales
for the full year of 2017 increased 20% to $5,428 million

Total 2017 dealer inventory was up 1% year-over-year; ORV dealer
inventory was down 6%

Polaris announced guidance for the full year 2018. Adjusted net
income is expected to be in the range of $6.00 to $6.20 per diluted
share with adjusted sales for the full year 2018 expected in the range
of up 3% to 5%

Polaris updated its long-term strategic goals and objectives
emphasizing top-line growth and margin expansion. Sales are
anticipated to grow at greater than 5% compounded annually and net
income is expected to increase at a greater than 15% compounded annual
growth rate through 2022 on an adjusted basis

Note: the results and guidance in this release, including the highlights
above, include references to non-GAAP operating measures, which are
identified by the word “adjusted” preceding the measure. A
reconciliation of GAAP to non-GAAP measures can be found at the end of
this release.

MINNEAPOLIS--(BUSINESS WIRE)--
Polaris Industries Inc. (NYSE: PII) today reported record fourth quarter
2017 sales of $1,431 million, up 18 percent from $1,218 million for the
fourth quarter of 2016. Adjusted sales for the fourth quarter of 2017
were $1,430 million, up 17 percent from the prior year period. The
Company reported fourth quarter 2017 net income of $31 million, or $0.49
per diluted share, compared with net income of $63 million, or $0.97 per
diluted share, for the 2016 fourth quarter. The reported net income
includes costs related to the wind down of Victory®
Motorcycles, Transamerican Auto Parts ("TAP") integration costs,
restructuring and realignment costs and impacts from U.S. tax reform.
Adjusted net income for the quarter ended December 31, 2017, excluding
these costs, was $95 million, or $1.47 per diluted share.

“I am proud of the Polaris team and excited to see their dedication and
hard work pay off as we returned the company to sustainable profitable
growth in 2017. Indian Motorcycles® massively outperformed
the Motorcycle industry, building on its existing momentum with a flood
of product news and a very successful year on the race track. We
accelerated North American demand for side-by-sides throughout the year
led by strong retail sales of RANGER® and Polaris
GENERAL™ along with increased international sales growth in all regions
outside North America. Additionally, we made significant investments and
improvements in our people, processes, product innovation and quality,
which led to notable execution improvements in our Off-Road Vehicle
business, marked progress on the TAP integration, and a substantial
upgrade of our quality control systems and infrastructure,” commented
Scott Wine, Chairman and Chief Executive Officer of Polaris Industries.

“Between strong demand and our intense focus on delivering high quality
products, in the fourth quarter we experienced some delays in getting
certain model year 2018 Off-Road vehicles into showrooms, which
ultimately affected our North American retail sales velocity. We are
implementing corrective actions to ensure our dealers have the
appropriate mix of inventory on hand as we approach the upcoming peak
retail selling season," continued Wine.

“Looking forward, I could not be more excited about the momentum we have
built. Dealer inventory is approaching optimal levels, our delivery
issues are being addressed, and our product innovation, which continues
to resonate well with consumers, will receive an added boost from
increased engineering spend. Furthermore, today we are unveiling our
revised strategic framework, reaffirming our dedication to bolstering
our market leadership position through a focus on superior productivity,
safety, quality, and customer service. These updated goals and
objectives emphasize top-line growth and margin expansion, which
translates to greater than five percent compound annual sales growth and
15 percent compound annual net income growth over the next five years.
The entire Polaris team is energized and committed to being the Best in
Powersports Plus, growing adjacencies and global markets while
simultaneously improving the safety and quality of our products.
Ultimately we are striving to build a productivity powerhouse, driving
accelerated earnings leverage and asset utilization, that delivers
consistently increasing value for our stakeholders,” Wine concluded.

Off-Road Vehicle (“ORV”) and Snowmobile
segment sales, including their respective PG&A related sales, were $994
million for the fourth quarter of 2017, up 13 percent over $881 million
for the fourth quarter of 2016 driven primarily by improved side-by-side
shipments. PG&A sales for ORV and Snowmobiles combined, increased nine
percent in the 2017 fourth quarter compared to the fourth quarter last
year. Gross profit increased 11 percent to $279 million, or 28.0 percent
of sales, in the fourth quarter of 2017, compared to $252 million, or
28.6 percent of sales, in the fourth quarter of 2016. Gross profit
percentage decreased primarily due to higher warranty and negative
product mix offset somewhat by lower promotional costs.

ORV wholegoodsales for the fourth quarter of 2017
increased 14 percent primarily driven by strong RZR®
and RANGER shipments. Polaris North American ORV unit retail
sales for the fourth quarter of 2017 were down low-single digits percent
from the 2016 fourth quarter, with side-by-side vehicles down low-single
digits percent and ATVs flat. The North American ORV industry was up
low-single digits percent compared to the fourth quarter last year. ORV
dealer inventory was down 6 percent in the 2017 fourth quarter compared
to the same period last year.

Snowmobile wholegood sales in the fourth quarter of 2017
increased 11 percent to $131 million, due to the timing of shipments.
Polaris snowmobile retail sales were down low double digits percent
during the fourth quarter due to low snowfall levels across the snowbelt
regions in North America.

Motorcyclesegment sales,
including PG&A, totaled $103 million, a decrease of two percent compared
to $104 million reported in the fourth quarter of 2016 which included
$25 million of Victory Motorcycle wholegood, accessory and apparel
sales. Indian Motorcycles wholegood sales increased in the high-single
digit percent range in the fourth quarter, while Slingshot®
sales more than doubled. Gross profit for the fourth quarter of 2017 was
$5 million compared to $1 million in the fourth quarter of 2016.
Adjusted for the Victory Motorcycles wind down costs of $3 million,
motorcycle gross profit was $8 million, up from the fourth quarter last
year due to higher sales volume for both Indian Motorcycles and
Slingshot and lower warranty costs.

North American consumer retail demand for the Polaris motorcycle
segment, including Indian Motorcycle and Slingshot, increased about 30
percent during the 2017 fourth quarter. Indian Motorcycle retail sales
increased about 17 percent, with both heavyweight and mid-sized
motorcycles increasing at similar mid-teens percent levels. Indian
Motorcycle continued to gain significant market share for the 2017
fourth quarter and full year on a year-over-year basis. Slingshot's
retail sales were up significantly due to improved product availability
compared to the fourth quarter last year. Motorcycle industry retail
sales, 900cc and above, were down high-single digits percent in the 2017
fourth quarter.

Global Adjacent Marketssegment
sales along with its PG&A related sales, increased 19 percent to $117
million in the 2017 fourth quarter compared to $98 million in the 2016
fourth quarter. Reported gross profit increased two percent to $30
million, or 25.4 percent of sales, in the fourth quarter of 2017,
compared to $29 million, or 29.5 percent of sales, in the fourth quarter
of 2016. Adjusted gross profit, excluding the manufacturing realignment
costs, increased four percent to $30 million, or 25.8 percent of sales
for the fourth quarter 2017. Commercial/Government/Defense group
wholegood sales were up 24 percent during the fourth quarter of 2017
primarily due to an increase in sales in the Company's Goupil
light-utility business and military sales.

Aftermarketsegment sales,
which include Transamerican Auto Parts ("TAP"), along with the Company's
other aftermarket brands of Klim®, Kolpin®, Pro
Armor®, Trail Tech® and 509®, increased
62 percent to $218 million in the 2017 fourth quarter compared to $134
million in the 2016 fourth quarter. TAP sales increased $83 million to
$192 million in the fourth quarter of 2017. Gross profit increased
significantly to $61 million, or 27.9 percent of sales in fourth quarter
of 2017, compared to $28 million, or 20.9 percent of sales, in the
fourth quarter of 2016. Adjusted gross profit in Q4 2016 was $37
million, or 27.4 percent of sales, adjusted for a $9 million TAP
inventory step-up charge. Sales and gross profit dollars were up
primarily due to the addition of TAP for the entire fourth quarter of
2017 as TAP was acquired in November of 2016. TAP sales grew four
percent in the fourth quarter of 2017 compared to last year on a
proforma basis, had Polaris owned TAP for the full year 2016.

International sales to customers outside of North America,
including PG&A, totaled $211 million for the fourth quarter of 2017, up
18 percent, from the same period in 2016. In the fourth quarter, sales
in EMEA grew low-twenties percent, Asia Pacific increased high-single
digits percent, and Latin America sales rose mid-teens percent.

Gross profit increased 18 percent to $368 million for the fourth
quarter of 2017 from $313 million in the fourth quarter of 2016. As a
percentage of sales, reported gross profit margin was 25.7 percent of
sales for the fourth quarter of both 2017 and 2016. Gross profit for the
fourth quarter of 2017 includes the negative impact of $3 million of
Victory Motorcycles wind down costs and $2 million of realignment costs.
Excluding these items, fourth quarter 2017 adjusted gross profit was
$373 million, or 26.1 percent of sales. For the fourth quarter of 2016
adjusted gross profit of $322 million, or 26.4 percent of sales,
excludes the negative impact of a $9 million purchase accounting
adjustment related to the TAP acquisition acquired in the 2016 fourth
quarter. Gross profit margins on an adjusted basis decreased due to
negative product mix, higher incentive compensation expenses and
increased commodity costs offset somewhat, by increased volume, lower
promotional costs and ongoing gross VIP cost savings.

Operating expenses increased 13 percent for the fourth quarter of
2017 to $264 million from $233 million in the same period in 2016, which
included $1 million in Victory Motorcycles wind down costs, $3 million
of TAP integration expenses and $9 million of corporate restructuring
charges. Excluding these costs, operating expenses increased primarily
due to the addition of operating expenses from TAP, higher variable
compensation expenses, as well as increased research and development
expenses and increased selling and marketing costs related to new
products, offset somewhat by lower legal related expenses.

Income from financial services was $19 million for the fourth
quarter of 2017, down four percent compared with $19 million for the
fourth quarter of 2016. The decrease is attributable to lower income
generated from the wholesale portfolio due to the lower dealer inventory
levels.

Non-operating other expense (income), net,was $5 million
of income for the fourth quarter of 2017, versus $6 million of expense
in the fourth quarter of 2016. The change primarily relates to a gain on
a sale of Brammo in addition to foreign currency exchange rate movements
and the corresponding effects on foreign currency transactions related
to the Company’s foreign subsidiaries.

The provision for income taxes for the fourth quarter of 2017 was
$87 million or 73.3 percent of pretax income compared with $23 million
or 26.8 percent of pretax income for the fourth quarter of 2016. The
increase in the provision for income taxes as a percent of pretax income
is due to the non-cash $55 million write-down of deferred tax assets as
a result of the passing of the U.S. tax reform bill in the fourth
quarter of 2017.

Financial Position and Cash Flow

Net cash provided by operating activities was $580 million for the year
ended December 31, 2017, compared to $572 million for the same period in
2016. The increase in net cash provided by operating activities for the
2017 period was due to the timing of accounts payable and accrued
expense payments, somewhat offset by higher factory inventory. Total
debt at December 31, 2017, including capital lease obligations and notes
payable, was $913 million. The Company’s debt-to-total capital ratio was
49 percent at December 31, 2017, compared to 57 percent a year ago due
primarily to repayments on the revolving and term loan facilities. Cash
and cash equivalents were $138 million at December 31, 2017, up from
$127 million for the same period in 2016.

Share Buyback Activity

During the fourth quarter of 2017, the Company repurchased and retired
13,000 shares of its common stock for $2 million. For the full year
ending December 31, 2017, the Company has repurchased and retired
1,028,000 shares of its common stock for $90 million. As of December 31,
2017, the Company has authorization from its Board of Directors to
repurchase up to an additional 6.4 million shares of Polaris common
stock.

2018 Business Outlook

For full year 2018, the Company expects adjusted net income to be in the
range of $6.00 to $6.20 per diluted share, compared with adjusted net
income of $4.85 per diluted share for 2017. The 2018 full year guidance
takes into account the impact of the corporate tax adjustments included
in the recently passed Tax Cuts and Jobs Act by the U.S. Congress. Full
year 2018 adjusted sales are anticipated to increase in the range of
three percent to five percent over 2017 adjusted sales of $5,428 million.

Vision and Strategy update

Polaris today updated its long-term Strategic Objectives first
introduced in 2009. The five major objectives are as follow: being the
Best in Powersports Plus, Growth through
Adjacencies, Global Market Leadership,
making Safety & Quality a Competitive Advantage
and becoming a Productivity Powerhouse.
These objectives emphasize sales and net income growth which translates
into annual sales growth of greater than five percent compounded
annually and net income growth of greater than 15 percent compounded
annually through 2022 on an adjusted basis.

Wind Down of Victory Motorcycles

Polaris announced on January 9, 2017 its intention to wind down its
Victory Motorcycles operations. The decision is expected to improve the
long-term profitability of Polaris and its global motorcycle business,
while materially improving the Company’s competitive position in the
industry. The Company will record costs, anticipated to be in the range
of $80 million to $90 million through 2018, associated with supporting
Victory dealers in selling their remaining inventory, the disposal of
factory inventory, tooling, and other physical assets, and the
cancellation of various supplier arrangements. In 2017, the Company
recorded pretax costs of $77 million. These costs are excluded from
Polaris’ 2017 sales and earnings guidance on a non-GAAP basis.

Restructuring and Realignment

Polaris announced on April 24, 2017 that it was making changes to its
network to consolidate production of like products and better leverage
plant capacity. Changes include discontinuing manufacturing at its plant
in Milford, Iowa, and transferring Milford production to existing
Polaris facilities in Huntsville, Ala.; Roseau, Minn.; and Anaheim,
Calif. Additionally, the Company has transferred fabrication operations
for its Pro Armor aftermarket products from its facility in Riverside,
Calif., to its Transamerican Auto Parts facility in Chula Vista, Calif.
In 2017, the Company incurred costs of $11 million, associated with the
manufacturing realignment, and are recorded in the income statement
within the respective gross profit and operating expenses. In addition,
the Company has recorded restructuring costs totaling $11 million in the
2017 fourth quarter related to realigning and streamlining the Company's
sales and service groups. These costs are excluded from Polaris’ 2017
sales and earnings guidance on a non-GAAP basis.

Use of Non-GAAP Financial Information

This press release and our related earnings call contain certain
non-GAAP financial measures, consisting of “adjusted" sales, gross
profits, operating expenses, net income and net income per diluted share
as measures of our operating performance. Management believes these
measures may be useful in performing meaningful comparisons of past and
present operating results, to understand the performance of its ongoing
operations and how management views the business. Reconciliations of
adjusted non-GAAP measures to reported GAAP measures are included in the
financial schedules contained in this press release. These measures,
however, should not be construed as an alternative to any other measure
of performance determined in accordance with GAAP.

Fourth Quarter 2017 Earnings Conference Call and Webcast Presentation

Today at 10:00 AM (CST) Polaris Industries Inc. will host a conference
call and webcast to discuss the 2017 fourth quarter results and
expectations for 2018 released this morning. The call will be hosted by
Scott Wine, Chairman and CEO; and Mike Speetzen, Executive Vice
President - Finance and CFO. A slide presentation and link to the
webcast will be posted on the Polaris Investor Relations website at ir.polaris.com.

To listen to the conference call by phone, dial 877-706-7543 in the U.S.
and Canada, or 478-219-0273 internationally. The Conference ID is
5877616.

A replay of the conference call will be available approximately two
hours after the call for a one-week period by accessing the same link on
our website, or by dialing 855-859-2056 in the U.S. and Canada, or
404-537-3406 internationally.

About Polaris

Polaris Industries Inc. (NYSE: PII) is a global powersports leader that
has been fueling the passion of riders, workers and outdoor enthusiasts
for more than 60 years. With annual 2017 sales of $5.4 billion, Polaris’
innovative, high-quality product line-up includes the RANGER®,
RZR® and Polaris GENERAL™ side-by-side off-road
vehicles; the Sportsman® and Polaris ACE®
all-terrain off-road vehicles; Indian Motorcycle® midsize and
heavyweight motorcycles; Slingshot® moto-roadsters; and
Polaris RMK®, INDY®, Switchback® and
RUSH® snowmobiles. Polaris enhances the riding experience
with parts, garments and accessories, along with a growing aftermarket
portfolio, including Transamerican Auto Parts. Polaris’ presence in
adjacent markets globally includes military and commercial off-road
vehicles, quadricycles, and electric vehicles. Proudly headquartered in
Minnesota, Polaris serves more than 100 countries across the globe.
Visit www.polaris.com
for more information.

Except for historical information contained herein, the matters set
forth in this news release, including management’s expectations
regarding 2018 future sales, shipments, net income, and net income per
share, operational initiatives and impact of tax reform are
forward-looking statements that involve certain risks and uncertainties
that could cause actual results to differ materially from those
forward-looking statements.Potential risks and uncertainties
include such factors as the Company’s ability to successfully implement
its manufacturing operations expansion initiatives, product offerings,
promotional activities and pricing strategies by competitors; economic
conditions that impact consumer spending; acquisition integration costs;
product recalls, warranty expenses; impact of changes in Polaris stock
price on incentive compensation plan costs; foreign currency exchange
rate fluctuations; environmental and product safety regulatory activity;
effects of weather; commodity costs; uninsured product liability claims;
uncertainty in the retail and wholesale credit markets; performance of
affiliate partners; changes in tax policy and overall economic
conditions, including inflation, consumer confidence and spending and
relationships with dealers and suppliers.Investors are also
directed to consider other risks and uncertainties discussed in
documents filed by the Company with the Securities and Exchange
Commission.The Company does not undertake any duty to any person
to provide updates to its forward-looking statements.

(summarized financial data follows)

POLARIS INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Data)

(Unaudited)

Three months ended December 31,

Years ended December 31,

2017

2016

2017

2016

Sales

$

1,431,049

$

1,217,789

$

5,428,477

$

4,516,629

Cost of sales

1,063,237

905,017

4,103,826

3,411,006

Gross profit

367,812

312,772

1,324,651

1,105,623

Operating expenses:

Selling and marketing

116,319

97,423

471,805

342,235

Research and development

62,412

48,870

238,299

185,126

General and administrative

85,198

87,039

331,196

306,442

Total operating expenses

263,929

233,332

1,041,300

833,803

Income from financial services

18,595

19,303

76,306

78,458

Operating income

122,478

98,743

359,657

350,278

Non-operating expense:

Interest expense

7,717

5,601

32,155

16,319

Equity in loss of other affiliates

1,921

1,434

6,760

6,873

Other expense (income), net

(5,137

)

6,249

1,951

13,835

Income before income taxes

117,977

85,459

318,791

313,251

Provision for income taxes

86,502

22,878

146,299

100,303

Net income

$

31,475

$

62,581

$

172,492

$

212,948

Net income per share:

Basic

$

0.50

$

0.98

$

2.74

$

3.31

Diluted

$

0.49

$

0.97

$

2.69

$

3.27

Weighted average shares outstanding:

Basic

62,993

63,578

62,916

64,296

Diluted

64,895

64,327

64,180

65,158

POLARIS INDUSTRIES INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands)

(Unaudited)

December 31,

December 31,

2017

2016

Assets

Current Assets:

Cash and cash equivalents

$

138,345

$

127,325

Trade receivables, net

200,144

174,832

Inventories, net

783,961

746,534

Prepaid expenses and other

101,453

91,636

Income taxes receivable

29,601

50,662

Total current assets

1,253,504

1,190,989

Property and equipment, net

747,189

727,596

Investment in finance affiliate

88,764

94,009

Deferred tax assets

115,511

188,471

Goodwill and other intangible assets, net

780,586

792,979

Other long-term assets

104,039

105,553

Total assets

$

3,089,593

$

3,099,597

Liabilities and Shareholders’ Equity

Current Liabilities:

Current portion of debt, capital lease obligations and notes payable

$

47,746

$

3,847

Accounts payable

317,377

273,742

Accrued expenses:

Compensation

168,014

122,214

Warranties

123,840

119,274

Sales promotions and incentives

162,298

158,562

Dealer holdback

114,196

117,574

Other

186,103

162,432

Income taxes payable

10,737

2,106

Total current liabilities

1,130,311

959,751

Long term income taxes payable

20,114

26,391

Capital lease obligations

18,351

17,538

Long-term debt

846,915

1,120,525

Deferred tax liabilities

10,128

9,127

Other long-term liabilities

120,398

90,497

Total liabilities

$

2,146,217

$

2,223,829

Deferred compensation

11,717

8,728

Shareholders’ equity:

Total shareholders’ equity

931,659

867,040

Total liabilities and shareholders’ equity

$

3,089,593

$

3,099,597

POLARIS INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

Years ended December 31,

2017

2016

Operating Activities:

Net income

$

172,492

$

212,948

Adjustments to reconcile net income to net cash provided by
operating activities:

Depreciation and amortization

191,108

167,512

Noncash compensation

50,054

57,927

Noncash income from financial services

(27,027

)

(30,116

)

Deferred income taxes

73,614

(26,056

)

Excess tax benefits from share-based compensation

—

(3,578

)

Impairment charges

25,395

—

Other, net

3,401

13,462

Changes in operating assets and liabilities:

Trade receivables

(17,064

)

2,030

Inventories

(26,958

)

111,999

Accounts payable

39,516

(62,693

)

Accrued expenses

94,557

145,261

Income taxes payable/receivable

23,410

(1,997

)

Prepaid expenses and others, net

(22,518

)

(14,916

)

Net cash provided by operating activities

579,980

571,783

Investing Activities:

Purchase of property and equipment

(184,388

)

(209,137

)

Investment in finance affiliate, net

32,272

35,179

Investment in other affiliates

(625

)

(11,595

)

Acquisition and disposal of businesses, net of cash acquired

1,645

(723,705

)

Net cash used for investing activities

(151,096

)

(909,258

)

Financing Activities:

Borrowings under debt arrangements / capital lease obligations

2,186,939

3,232,137

Repayments under debt arrangements / capital lease obligations

(2,421,473

)

(2,552,760

)

Repurchase and retirement of common shares

(90,461

)

(245,816

)

Cash dividends to shareholders

(145,423

)

(140,336

)

Proceeds from stock issuances under employee plans

42,738

17,690

Excess tax benefits from share-based compensation

—

3,578

Net cash provided by (used for) financing activities

(427,680

)

314,493

Impact of currency exchange rates on cash balances

9,816

(5,042

)

Net increase (decrease) in cash and cash equivalents

11,020

(28,024

)

Cash and cash equivalents at beginning of period

127,325

155,349

Cash and cash equivalents at end of period

$

138,345

$

127,325

POLARIS INDUSTRIES INC.

NON-GAAP RECONCILIATION OF RESULTS

(In Thousands, Except Per Share Data)

(Unaudited)

Three months ended

December 31,

Years ended December 31,

2017

2016

2017

2016

Sales

$

1,431,049

$

1,217,789

$

5,428,477

$

4,516,629

Victory wind down (1)

(2,364

)

—

(1,857

)

—

Restructuring & realignment (3)

1,048

—

1,048

—

Adjusted sales

1,429,733

1,217,789

5,427,668

4,516,629

Gross profit

367,812

312,772

1,324,651

1,105,623

Victory wind down (1)

2,874

—

57,844

—

TAP (2)

—

8,803

12,950

8,803

Restructuring & realignment (3)

2,463

—

12,980

—

Adjusted gross profit

373,149

321,575

1,408,425

1,114,426

Income before taxes

117,977

85,459

318,791

313,251

Victory wind down (1)

164

—

77,398

—

TAP (2)

3,463

21,454

26,921

21,454

Restructuring & realignment (3)

11,598

—

22,116

—

Adjusted income before taxes

133,202

106,913

445,226

334,705

Net income

31,475

62,581

172,492

212,948

Victory wind down (1)

(1,012

)

—

52,366

—

TAP (2)

2,177

13,515

16,923

13,515

Restructuring & realignment (3)

7,291

—

13,902

—

Tax reform (4)

55,398

—

55,398

—

Adjusted net income (5)

95,329

76,096

311,081

226,463

Diluted EPS

$

0.49

$

0.97

$

2.69

$

3.27

Victory wind down (1)

(0.02

)

—

0.82

—

TAP (2)

0.03

0.21

0.26

0.21

Restructuring & realignment (3)

0.11

—

0.22

—

Tax reform (4)

0.86

—

0.86

—

Adjusted EPS (5)

$

1.47

$

1.18

$

4.85

$

3.48

(1) Represents adjustments for the wind down of Victory
Motorcycles, including wholegoods, accessories and apparel

(4) Represents an adjustment for impacts of a charge in
its income tax provision due to the remeasurement of its deferred
income tax positions at the new corporate income tax rate of 23.8
percent (from 37.1 percent)

(5) The Company used its estimated statutory tax rate of
37.1% for the non-GAAP adjustments, except for the non-deductible
items and the tax reform related changes noted in Item 4

2016 Reclassified Results: 2016 sales and gross profit results for
ORV/Snowmobiles, Motorcycles and Aftermarket are reclassified for
the new Aftermarket reporting segment.

POLARIS INDUSTRIES INC.

NON-GAAP RECONCILIATION OF SEGMENT RESULTS

(In Thousands)

(Unaudited)

Three months ended December 31,

Years ended December 31,

2017

2016

2017

2016

SEGMENT SALES

ORV/Snow segment sales

$

993,750

$

880,905

3,570,753

3,283,890

Restructuring & realignment (3)

1,048

—

1,048

—

Adjusted ORV/Snow segment sales

994,798

880,905

3,571,801

3,283,890

Motorcycles segment sales

102,723

104,331

576,068

699,171

Victory wind down (1)

(2,364

)

—

(1,857

)

—

Adjusted Motorcycles segment sales

100,359

104,331

574,211

699,171

Global Adjacent Markets (GAM) segment sales

116,612

98,384

396,764

341,937

No adjustment

—

—

—

—

Adjusted GAM segment sales

116,612

98,384

396,764

341,937

Aftermarket segment sales

217,964

134,169

884,892

191,631

No adjustment

—

—

—

—

Adjusted Aftermarket sales

217,964

134,169

884,892

191,631

Total sales

1,431,049

1,217,789

5,428,477

4,516,629

Total adjustments

(1,316

)

—

(809

)

—

Adjusted total sales

$

1,429,733

$

1,217,789

$

5,427,668

$

4,516,629

SEGMENT GROSS PROFIT

ORV/Snow segment gross profit

$

278,544

$

251,521

$

1,054,557

$

907,597

Restructuring & realignment (3)

1,048

—

1,048

—

Adjusted ORV/Snow segment gross profit

279,592

251,521

1,055,605

907,597

Motorcycles segment gross profit

5,108

1,063

16,697

87,538

Victory wind down (1)

2,874

—

57,844

—

Adjusted Motorcycles segment gross profit

7,982

1,063

74,541

87,538

Global Adjacent Markets (GAM) segment gross profit

29,623

28,986

94,920

95,149

Restructuring & realignment (3)

415

—

10,932

—

Adjusted GAM segment gross profit

30,038

28,986

105,852

95,149

Aftermarket segment gross profit

60,777

28,017

225,498

46,289

TAP (2)

—

8,803

12,950

8,803

Adjusted Aftermarket segment gross profit

60,777

36,820

238,448

55,092

Corporate segment gross profit

(6,240

)

3,185

(67,021

)

(30,950

)

Restructuring & realignment (4)

1,000

—

1,000

—

Adjusted Corporate segment gross profit

(5,240

)

3,185

(66,021

)

(30,950

)

Total gross profit

367,812

312,772

1,324,651

1,105,623

Total adjustments

5,337

8,803

83,774

8,803

Adjusted total gross profit

$

373,149

$

321,575

$

1,408,425

$

1,114,426

(1) Represents adjustments for the wind down of Victory
Motorcycles, including wholegoods, accessories and apparel

2016 Reclassified Results: 2016 sales and gross profit results for
ORV/Snowmobiles, Motorcycles and Aftermarket are reclassified for
the new Aftermarket reporting segment.

POLARIS INDUSTRIES INC.NON-GAAP ADJUSTMENTS TO FULL YEAR
2018 GUIDANCE

2018 Adjusted Guidance: 2018 guidance excludes the pre-tax effect
of acquisition integration costs of approx. $10 million, supply chain
transformation costs of approx. $10 million to $20 million and the
remaining impacts associated with the Victory wind down which is
estimated to be in the range of $5 million to $10 million. 2018 adjusted
sales guidance excludes any Victory wholegood, accessories and apparel
sales and corresponding promotional costs as the Company is in the
process of exiting the brand. The Company has not provided
reconciliations of guidance for adjusted diluted net income per share,
in reliance on the unreasonable efforts exception provided under Item
10(e)(1)(i)(B) of Regulation S-K. The Company is unable, without
unreasonable efforts, to forecast certain items required to develop
meaningful comparable GAAP financial measures. These items include costs
associated with the Victory wind down that are difficult to predict in
advance in order to include in a GAAP estimate.